Biome Technologies plc (LON:BIOM) has announced its unaudited Interim Results for the six months ended 30 June 2020.
· The Group generated revenues of £2.5m (H1 2019: £3.4m1) and gross profit of £0.8m (H1 2019: £1.5m)
· The Biome Bioplastics division has now become the principal revenue generator for the Group with growth of 71% on H1 2019
· Biome Bioplastics has continued to grow its revenues from both developed and new products
· Stanelco RF division saw a sharp decline in revenues as the impact of Covid-19 exacerbated weak market demand
Paul Mines, Chief Executive Officer said:
“The Bioplastics division performed exceptionally well in the first half despite the upheaval caused by Covid-19, with a 71% increase in revenues compared with the same period in the prior year. As previously reported, the revenues of the Stanelco RF division, however, were compromised by both over-capacity in the fibre optic market and the slow-down in industrial activity caused by Covid-19. The Bioplastics division has now therefore become the principal revenue generator for the Group, and we expect this to be maintained into the future.”
1 Grant income was classified as Revenue in the Group’s interim results for the period ended 30 June 2019, and as Other operating income in the Group’s Annual Report and Financial Statements for the year ended 31 December 2019. The comparatives for 30 June 2019 have correspondingly been restated in these interim results. Group income including grant income for the period ended 30 June 2020 was £2.6m (H1 2019: £3.6m). Bioplastics income including grant income for the period ended 30 June 2020 was £2.2m (H1 2019: £1.4m).
During the first half of 2020, the Group’s two divisions performed in line with the expectations set out by the Board in April 2020 during the early stages of the lockdown due to the Covid-19 pandemic.
Group revenues for the period were £2.5m (H1 2019: £3.4m). Including grant income, Group income was £2.6m (H1 2019: £3.6m). Grant income was classified as Revenue in the Group’s interim results for the period ended 30 June 2019, and as Other operating income in the Group’s Annual Report and Financial Statements for the year ended 31 December 2019. The comparatives for 30 June 2019 have correspondingly been restated in these interim results.
The Bioplastics division continued its strong growth trajectory despite the impact of Covid-19, delivering an increase in revenues of 71% on the comparable period, and has become the principal revenue generator for the Group. Revenues in the Stanelco RF Technologies division sharply reduced by 82% due to weak market demand and the impact of Covid-19.
Gross profit for the Group was £0.8m (H1 2019: £1.5m) impacted by the effect of the reduced revenues highlighted above. The overall gross margin for the Group was 30% (H1 2019: 44%) reflecting the increased weighting of sales towards the Bioplastics division.
Vigorous cost cutting measures, including a voluntary reduction of Directors’ remuneration and accessing government support schemes, contributed to reduced administrative expenses in the period to £1.7m (H1 2019: £2.2m). As a result, the Group recorded a loss before interest, depreciation, amortisation and share option charges for the six months to 30 June 2020 of £0.5m (H1 2019: £0.2m loss). The loss after taxation was £0.8m (H1 2019: £0.5m loss), which equates to a loss per share of 29 pence on a basic and diluted basis (H1 2019: loss per share of 20 pence on a basic and diluted basis).
The Group’s cash position as at 30 June 2020 was £1.1m (31 December 2019: £2.1m) reflecting the first half losses and an increase in working capital requirements in the Bioplastics division. The Group had no debt as at 30 June.
Biome Bioplastics Division
Revenues in the Bioplastics division continued to grow during H1 2020, reaching £2.1m for the period (H1 2019: £1.2m). Revenue in the second quarter was £1.2m and represented a new record for the division, despite the disruption caused by the pandemic.
The strong performance in the period was underpinned by increased sales of outer packaging for the US coffee market and by growing revenues for rigid ring materials for the coffee-pod application. Despite the lockdown and supply chain constraints in both Europe and the US, the Bioplastics division’s workflows proved resilient and production output met customer requirements throughout the first half.
As well as increased sales to existing customers, the Bioplastics division is working with an expanding list of potential new customers particularly in the US and developmental work related to this continues with some vigour. The business is well positioned to exploit further opportunities in this growing market as consumers and brands continue to move to reduce the impact of waste from oil-based persistent plastics, driving recognition of the benefits of novel bio-based polymers.
These prospects include:
· Filtration mesh – implementation is underway with a second end-use customer in the coffee filtration market
· Coffee pod material – the Company’s heat stable material, developed for coffee pods, is attracting new customers within the US market and commercial sales of this product are gaining momentum
· Packaging film – the Company is working on seven new customer projects that focus on the conversion of flexible packaging to compostable formats. Six of these projects are for the North American market
The division’s medium term research activities in Industrial Biotechnology continue, which include the development of a new range of performance polymers with properties which are expected to improve the existing generation of products. This work, taking place at the universities of Nottingham and York, is supported by government grants. Whilst university closures have slowed this work, post period end, the division has received an Innovate UK Continuity Grant of £63,000 to support the recovery of time lost.
Stanelco RF Technologies Division
Revenues for the first half of 2020 in the Stanelco RF division were £0.4m (H1 2019: £2.2m).
A substantial proportion of the Stanelco RF division’s revenues are typically derived from the production and maintenance of furnaces for the manufacture of fibre optic cable. Overcapacity in the fibre optic cable market, apparent from late 2018, has been exacerbated by the pandemic as telecommunication companies have suffered restrictions on cable deployment activity and international trade disputes have slowed the deployment of 5G. These factors have led to temporary shutdowns of a number of manufacturing facilities at Stanelco RF’s customers, with a consequential reduction in the requirement for Stanelco RF to provide equipment, spares and service support. The expectation is that in the long term, the fibre optic market will benefit from the pandemic through the enhanced pace of global digitisation required to meet the demands of, for example, increased home working and the 5G roll-out. However, in the short term, demand is likely to remain weak.
The division also provides induction heating and welding equipment to various end markets in the UK and continental Europe. Activity in these markets in the second quarter was very weak, with many facilities closed and customers deferring the purchase of capital goods.
The division has accordingly reduced costs and cash outflows where possible as well as reviewing possible alternative markets for its technologies.
The Board is pleased that in the last few weeks, the enquiry level has increased and there have been some small contract wins, albeit overall demand levels remain subdued.
To protect the Group’s cash resources, the Directors and other staff salary reductions, agreed during quarter two, have been continued in quarter three of 2020, and use of the UK government’s furlough scheme has been made where appropriate.
The Board has considered the effect of Brexit on the Group’s future performance. As the majority of the Group’s revenues and manufacturing are located in North America the Board believes any impact will be relatively limited. Similarly, the majority of raw material purchases are sourced from outside the EU.
The Group exports the majority of its products and therefore fluctuations in exchange rates may affect product demand. The Board are informed regularly of any potential impact of exchange rate movements and act to mitigate any adverse movements wherever possible.
The Board has considered the going concern basis for the preparation of these Interim Results. The outlook for trading and the availability of funds have been forecast for the period to September 2021.
The Company intends to raise total proceeds of £1.1m before costs, representing £1.0m net of costs, via a placing and subscription of new ordinary shares, as explained in the outlook section below and in Note 4. The Directors are satisfied that the Group has sufficient resources to continue in operational existence for at least one year from the date of approval of these Interim Results.
The Board adopted ambitious Key Performance Indicators (KPIs) for the 2018 – 2020 objective cycle. These will now be adjusted and extended to the end of 2023 reflecting the continued progress of the Bioplastics division (with the addition of an EBITDA KPI), the headwinds facing the Stanelco RF division and the impact of the Covid-19 virus to date:
· 40% annual revenue growth in the Biome Bioplastics division
· Bioplastics division’s profitable revenue growth to achieve a 10%-12.5% EBITDA margin by the end of the KPI period
· Continued diversification of the Group’s turnover by product and market to ensure that no single product or end customer contributes more than 15% of revenues by 2023
· Continued investment in the Group’s next generation of products by spending significantly more per annum on average than the £0.3m per annum average spend over the previous strategic objective cycle
The Group’s segmental EBITDA will be based on a revised allocation of Central Costs. This revision will enable a better understanding of Divisional performance and is explained in some detail in Note 5 to the interim financial statements below.
The Board will continue to measure the Group’s performance against these KPIs and report to shareholders annually on progress.
Current trading continues in line with the Board’s expectations set out in the Trading Statement of 30 July 2020.
Looking further forward, the Bioplastics division’s orderbook remains strong with a range of products with a more predictable and improving growth profile, particularly in the US market. An encouraging list of prospects for 2021 and strong customer engagement has enabled the Board to form its expectations of continued vigorous growth in this division for 2021. Delivering this growth will require continued investment in resources and working capital.
The Board believes that the Stanelco RF division’s prospects for 2021 will remain moderated by continued overcapacity in the fibre optic cable market and Covid-19 related uncertainties around demand and capital expenditure in the industrial markets that the division serves. The Board’s expectations have been set accordingly. As mentioned above the expectation is that, in time, the fibre optic market will benefit from global digitisation (accelerated by the pandemic).
The Company intends to raise total proceeds of £1.1m before costs, representing £1.0m net of costs, via a placing and subscription of new ordinary shares. This will provide support for the ambitious growth plans of the Bioplastics division. New and existing shareholders have confirmed their intention to participate in this fundraising which is expected to be announced shortly.